Mortgages keep lock on spending

Growth of the economy will bring benefits, but not much relief for Britain’s debt-laden households, writes Geoffrey Dicks

JANUARY's unexpectedly good data put consumer price inflation (CPI) on track to be back at its 2% target, possibly as soon as May. By the end of the year, as last year's energy shock goes into reverse, it could be as low as 1.5%.

Falling inflation will ease the squeeze on household incomes, which rose a miserable 1.25% in real terms in 2006. Higher debt-servicing costs will restrict consumer spending to another modest year of 2% growth in 2007.

It has been a good week for inflation. On the CPI measure that the monetary policy committee (MPC) targets, inflation fell from 3% in December to 2.7% in January. Petrol prices were the main driver, falling almost 1p a litre in January and 2% from the previous year. The high street was also helpful, with deflation reemerging in January for the first time since August.